Business Studies for Class 11 Chapter 2 Forms of Business Organisation

Learn CBSE Business Studies Index Terms for Class 11, Chapter 2 Including Definitions and Meanings

1. Sole Proprietorship – A sole proprietorship, otherwise called a sole tradership, individual business, or individual entrepreneurship or ownership, is a kind of a business enterprise owned and run by one individual and in which there is no lawful differentiation between the proprietor and the business entity.

2. Hindu Undivided Family Business – Hindu Undivided Family Business or Joint Hindu Family Business is a precise kind of business structure found only in India. This is one of the classical methods of business structure in the nation. It is administered by the Hindu Law. The source of membership in the company is birth in a family, and 3 consecutive generations can be members of the company.

3. Coparceners – Under the Hindu undivided family business, all the members hold equal ownership over the property of an ancestor, and they are called coparceners.

4. Dayabhaga – Under the Hindu undivided family business, the dayabhaga system prevails in West Bengal and Assam and allows both the male and female members of the family to be coparceners. A son gets the right to ancestral property only after the death of his father.

5. Mitakshara System – Under the Hindu undivided family business, the Mitakshara system prevails in most parts of India except West Bengal. There are four sub-schools – Benares, Mithila, Maharashtra or Mumbai, and Dravida or Madras school. The application of schools of Mitakshara is region­wise. It allows only male members to be coparceners in the business.

6. Karta – Under the Hindu undivided family business, the Karta is the person who is the head and eldest member of the family and is the person who has full control over business activities.

7. Partnership – A partnership is a plan where parties, known as business partners, consent to participate in propelling their common interests. The partners in a partnership may be people, organisations, interest-based organisations, schools, governments, or any combination.

8. Active Partner – A partner who contributes capital and also actively participates in the management and affairs of the business is called an active partner. The active partner shares the profits and losses of the business and has unlimited liability.

9. Sleeping or Dormant Partner – A partner who contributes capital but does not participate in the management and affairs of the business is called a sleeping or dormant partner. The sleeping partner shares the profits and losses of the business and has unlimited liability.

10. Secret Partner – A secret partner is an individual who does not disclose their identity to the public. Their partnership is kept secret. A secret partner’s name is not associated in any way with the business. This partner enjoys all the benefits of being in a partnership firm.

11. Nominal Partner – A nominal partner is an individual who lends their name to the business but is not involved in the business itself. A nominal partner does not enjoy the return earned from business by way of profits. In simple terms, a nominal partner is not entitled to any profits or any operations of the business but allows the partnership firm to utilise the partner’s name.

12. Partner by Estoppel – A partner by estoppel is a partner who, through their conduct or behaviour, gives an impression that they are a partner of a particular firm. Although such a person neither contributes capital nor participates in the management of the business, in the eyes of the third party, the individual is known as a partner of that firm. Hence, the partner too is liable for the debts of the firms.

13. Partner by Holding Out – A person who is not actually a partner of a firm but knowingly allows themselves to be represented as a partner of the firm is called a partner by holding out. Such a person can be held liable for the repayment of debt extended to the firm due to such representation. In order to avoid this liability, such a person should immediately clarify their position to the third party, stating the fact that the individual is not a partner. Failure to clarify the same would make the individual partner liable to the third party for repayment of any debts taken by the partnership firm.

14. Partnership at Will – Partnership at Will can be defined as when there is no clause mentioned about the expiration of a partnership firm. Under section 7 of the Indian Partnership Act 1932, the two conditions that have to be fulfilled by a firm to become a Partnership at Will are:

  • The partnership agreement should have no fixed expiration date.
  • No particular determination of the partnership should be mentioned.

Therefore, if the duration and determination are mentioned in the agreement, then it is not a partnership at will. Also, initially, if the firm had a fixed expiration date, but the operation of the firm continues beyond the mentioned date that it will be considered as a partnership at will.

15. Particular Partnership – A partnership or an association can be shaped for carrying on a continuing business, or it may be framed for one specific undertaking or project. In the event that the organisation is shaped exclusively to do one undertaking or to finish one project, such an association is known as a particular partnership.

After the culmination of the said activity or business venture, the association or partnership will be broken down or dissolved. Notwithstanding, the partners can come to a consent to proceed with the said association. In any case, without this, the partnership closes when the project or business venture is finished.

16. General Partnership – A general partnership comprises two or more owners to run a business. In this partnership, each partner represents the firm with equal rights. All partners can participate in management activities and decision-making, and have the right to control the business. Similarly, profits, debts, and liabilities are equally shared and divided equally.

In other words, the general partnership definition can be stated as those partnerships where rights and responsibilities are shared equally in terms of management and decision making. Each partner should take full responsibility for the debts and liability incurred by the other partner. If one partner is sued, all the other partners are considered accountable. The creditor or court will hold the partner’s personal assets. Therefore, most of the partners do not opt for this partnership.

17. Limited Partnership – A limited partnership includes both the general and limited partners. The general partner has unlimited liability and manages the business and the other limited partners. Limited partners have limited control over the business (limited to their investment). They are not associated with the everyday operations of the firm.

In most cases, the limited partners only invest and take a profit share. They do not have any interest in participating in management or decision-making. This non-involvement means they do not have the right to compensate the partnership losses from their income tax return.

18. Registration – Registration of a partnership firm means recording the name of the firm along with the relevant prescribed particulars of the partnership in the register of firms that the registrar holds. Registering the partnership firm with the registrar provides an unquestionable existence of the partnership firm. All the rights and responsibilities of each member are recorded in a document known as a Partnership Deed. This deed can be oral or written; however, an oral agreement is of no use when the firm has to deal with tax.

19. Partnership Deed – A partnership is a kind of business where a formal agreement between two or more people is made. They agree to be co-owners, distribute responsibilities for running an organisation and share the income or losses that the business generates. These features of partnerships are documented in a document which is known as a partnership deed.

In other words, a partnership deed is a partnership agreement between the partners of the firm which outlines the terms and conditions of the partnership between the partners. The purpose of a partnership deed is to provide a clear understanding of the roles of each partner, which ensures the smooth running of the operations of the firm.

20. Cooperative Society – A cooperative society is an independent association of people joined deliberately to meet their normal financial, cultural, and social requirements and goals through a mutually claimed venture. Cooperatives are equitably claimed by their members, with every member having one vote in choosing the directorate.

Cooperative societies are formed with the aim of helping their members. This type of business organisation is formed mainly by weaker sections of the society in order to prevent any type of exploitation from the economically stronger sections of the society.

Cooperative societies need to be registered under the Cooperative Societies Act, 1912 in order to function as a legal entity. Members of the society raise the capital within themselves.

21. Joint Stock Company – A joint-stock company is an organisation that is owned jointly by all its shareholders. Here, all the stakeholders have a specific portion of stock owned, usually displayed as a share.

Each joint-stock company share is transferable, and if the company is public, then its shares are marketed on registered stock exchanges. Private joint-stock company shares can be transferred from one party to another party. However, the transfer is limited by agreement and family members.

22. Private Company – As per Section 2 (68) of the Companies Act 2013, a private company means a company having a minimum paid-up capital of Rs.1 lakh or such higher paid-up capital as may be prescribed by its articles – i). restricts the right to transfer its shares; ii). limits the number of its members to 200 (excluding its employees); iii). prohibits any invitation to the public to subscribe for any shares or debentures of the company.

23. Public Company – A public company is defined as a company that offers a part of its ownership in the form of shares, debentures, bonds, and securities to the general public through the stock market. There must be at least seven members to form a public company. As per section 3 (1) (iv) of the Companies Act 1956, a public company means a company that is not a private company, has a minimum paid-up capital of Rs 5,00,000 or such higher paid-up capital, as may be prescribed, is a private company, being a subsidiary of a company which is not a private company.

A public company should not be mistakenly understood as a publicly-owned company, as the latter is exclusively owned and controlled by the government. A public company issues its share to the general public without any restriction on the maximum number of persons.

24. Mutual Agency – Mutual agency is the legal relationship between partners in a partnership where each partner has authorisation powers and the ability to enter the partnership into business contracts. In other words, each partner in the partnership is an agent in the business and has the authority to make business decisions that commit or bind the partnership, as a whole, to a business agreement with a third party or entity.

25. Perpetual Succession – In company law, perpetual succession is the continuation of a company’s/corporation’s or other organisation’s existence despite the death, retirement, bankruptcy, insolvency, insanity, change in membership, or an exit from the business of any owner or member, or any transfer of stock, etc.

26. Artificial Person – By the term artificial person, we mean that a company is created as a separate legal entity under the law and is a juristic person. However, unlike human beings, a company, as an artificial person, cannot breathe or talk, cannot sign its documents, and cannot negotiate with its customers. In contrast, like human beings, a company does have its own life that is truly independent of the life of its members. Hence, because of these dissimilarities and similarities, a company is regarded as an artificial person.

27. Incorporation of a Company – ‘Incorporation of a company’ means the company’s registration under the Companies Act, 1956. Steps to be followed for the registration of a company are as follows:

1. Application for registration: An application in the prescribed format, duly signed by all the partners, is to be submitted to the Registrar of Companies, containing the following information: (i) Name of the company, (ii) Location of the company, (iii) Memorandum of association, (iv) Articles of association, (v) Written consent of directors, (vi) Names and addresses of the directors, (vii) Statutory declaration announcing that all the information is accurate and all the requirements of the act have been duly fulfilled.

2. Fees: Required amount of fees is to be deposited with the Registrar of Companies.

3. Issuance of certificate: When the registrar is satisfied with all the formalities, he enters the company’s name in the register and issues a certificate of registration.

28. Holding Company – A holding company is a business entity that is typically a limited liability company (LLC) or a corporation. Commonly, a holding company manufactures nothing, sells any services or products, or conducts any other business tasks. Instead, holding companies hold the controlling stock in different organisations. A holding company is likewise called an “umbrella” or parent organisation.

However, a holding company claims the resources and assets of different organisations; it frequently keeps up with just oversight capacities. So while it might direct the organisation’s administration decisions, it doesn’t effectively take part in maintaining every day’s economic activity of these subsidiaries.

We hope that the offered Business Studies Index Terms for Class 11 with respect to Chapter 2: Forms of Business Organisations, will help you.

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